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Rights of a Mortgagor
Introduction:
This note examines the rights of a mortgagor under a mortgage. In particular, the note will focus on a mortgagor’s right to redeem the mortgaged property.
1. Overview of the Rights of a Mortgagor to Redeem the Mortgaged Property:
A. Pre-1973: Before the Enactment of the Mortgages Act, 1972 (N.R.C.D. 96)
Before the enactment of the Mortgages Act, 1972 (N.R.C.D. 96), a mortgagor had to convey the mortgaged property to the mortgagee with a covenant that the mortgagee would reconvey the property to the mortgagor upon the latter’s payment of the debt or discharge of his obligation.
According to Da Rocha and Lodoh in Ghana Land Law and Conveyancing (2nd Edition), at page 227, prior to 1973, the mortgagor actually “parted with his title and the only interest he had was his right to redeem the property.” It is this right to redeem the mortgaged property, upon the discharge of the mortgagor’s obligations, that was described as the right of the mortgagor to redeem the mortgage or the mortgaged property.
This pre-1973 conception of the right to redeem is reflected in the case of Santley v Wilde (1899) 2 Ch 474, where it was advanced that
The principle is this: a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt, or the discharge of some other obligation for which it is given. This is the idea of a mortgage; and the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding. [emphasis added]
The general right of the mortgagor to redeem the mortgage was also captured in the case of Noakes & Co Ltd v Rice, [1901] UKHL 3 (Dec 17, 1901), where it was similarly advanced that
Redemption is of the very nature and essence of a mortgage, as mortgages are regarded in equity. It is inherent in the thing itself. And it is, I think, as firmly settled now as it ever was in former times that equity will not permit any device or contrivance designed or calculated to prevent or impede redemption. It follows as a necessary consequence that, when the money secured by a mortgage of land is paid off, the land itself and the owner of the land in the use and enjoyment of it must be as free and unfettered to all intents and purposes as if the land had never been made the subject of the security.
Summarily, once the debt secured by a mortgage is paid off or the obligation is discharged, the mortgaged property is redeemable.
B. After the Enactment of the Mortgages Act, 1972 (N.R.C.D. 96):
Under NRCD 96, a mortgage is recognised as a mere contract, not a conveyance. It is a contract by which immovable property is charged as security for the discharge of an obligation. In Section 1(2) of NRCD 96, it is expressly provided that
A mortgage shall be an encumbrance on the property charged, and shall not, except as provided by this Decree, operate so as to change the ownership, right to possession or other interest (whether present or future) in the property charged.
Given that there is no change in ownership, the right to redeem under NRCD 96 cannot be in the form of reconveyance of the mortgaged property from the mortgagee to the mortgagor. Rather, it is in the nature of repaying the debt or discharging obligations and freeing the mortgaged property from the charge that was imposed on it under the mortgage. Put differently, the right of a mortgagor to redeem the mortgaged property under NRCD 96 involves the mortgagor repaying the debt or discharging his obligations and removing the encumbrance or charge on the mortgaged property.
C. Capacity to Redeem the Mortgaged Property:
The right to redeem the mortgaged property is generally exercised by the mortgagor, defined in Section 24(1) of NRCD 96 to include “any person from time to time deriving title through the original mortgagor or entitled to redeem a mortgage according to his interest in the mortgaged property.” That is, the original mortgagor can exercise the right of redemption, and so can his successors in title, such as his personal representative, a judgment creditor, and others.
D. Methods of Redemption:
In Section 20 of NRCD 96, it is provided that
(1) Any person entitled to redeem mortgaged property may redeem by—
- performing all of the acts secured by the mortgage which have yet to be performed; and
- compensating the mortgagee by payment of interest, costs and other expenses due in respect of any failure to have timely performance of the acts secured by the mortgage.
As it was discussed in a previous note, a mortgagor agrees to create a charge over his immovable property as security for the performance of an obligation. The mortgagor can redeem the property by performing his obligations under the mortgage and paying all interest, costs, and expenses that accrue owing to his failure to perform his obligations in a timely manner.
2. Contractual Right to Redeem and Equitable Right of Redemption:
There is a distinction between a mortgagor’s contractual right to redeem the mortgaged property and his equitable right of redemption.
A. Contractual Right to Redeem:
Under a mortgage, a date, known as the contractual date of redemption or the legal date of redemption, was often provided on which the mortgagor had to redeem the mortgage. Once the mortgagor repaid his debt or discharged his obligations on that date, he was entitled to have the mortgaged property reconveyed to him.
If the mortgagor failed to repay his debt or discharge his obligations after that date, the mortgagee was entitled to keep the mortgaged property.
Also, the mortgagor could not redeem the mortgaged property prior to the contractual date of redemption. In the case of Brown v. Cole (1845), 14 Sim. 427, for instance, the plaintiff-debtor mortgaged a leasehold interest as security for a loan to be repaid in one year. Eight months later, the plaintiff-debtor had a chance to sell his property interest and tendered the amount due to the lender, who refused to accept repayment. In dismissing a suit by the plaintiff-debtor to redeem the property, the court said
[i]f mortgagors were allowed to pay off their mortgage money at any time after the execution of the mortgage, it might be attended with extreme inconvenience to mortgagees, who generally advance their money as an investment.
Here, the mortgagor was not allowed to redeem the property prior to the contractual or legal date of redemption. Other cases held that the lender could not be compelled to give up his investment before maturity, which was before the contractual date of redemption.
B. Equity of Redemption:
In Black’s Law Dictionary, 9th ed., the equity of redemption is defined as
The right of a mortgagor in default to recover property before a foreclosure sale by paying the principal, interest, and other costs that are due.
A defaulting mortgagor with an equity of redemption has the right, until the foreclosure sale, to reimburse the mortgagee and cure the default.
In many jurisdictions, the mortgagor also has a statutory right to redeem within six months after the foreclosure sale, and the mortgagor becomes entitled to any surplus from the sale proceeds above the amount of the outstanding mortgage. - Also termed right of redemption
Under the equity of redemption, the mortgagor can redeem the mortgaged property before or after the contractual date of redemption. See the case of Khoury v. Mitchual and Another [1989-90] 2 GLR 256, where the court held that a mortgagor’s right of redemption arose from the date the mortgage was made.
3. The Mortgagor Can Avoid Clogs on the Equity of Redemption:
In Black’s Law Dictionary, a clog on the equity of redemption is defined as
An agreement or condition that prevents a defaulting mortgagor from getting back the property free from encumbrance upon paying the debt or performing the obligation for which the security was given.
It has been severally established that an agreement or condition that prevents a mortgagor from redeeming the mortgaged property is a clog on the equity of redemption and is void. This principle is reflected in the maxim “once a mortgage, always a mortgage,” which means the courts will not allow a mortgage to be converted into a sale, a lease, or any other arrangement that has the effect of permanently depriving the mortgagor of the right to redeem the mortgaged property. Once it is a mortgage, it will always remain a mortgage.
Lord Lindley, in Samuel v. Jarrah Timber & Wood Paving Co. [1904] A.C. 323 (H.L. 1904), explained the meaning of the doctrine “once a mortgage, always a mortgage” as follows:
The doctrine 'Once a mortgage always a mortgage' means that no contract between a mortgagor and a mortgagee made at the time of the mortgage and as part of the mortgage transaction, or, in other words, as one of the terms of the loan, can be valid if it prevents the mortgagor from getting back his property on paying off what is due on his security. Any bargain which has that effect is invalid, and is inconsistent with the transaction being a mortgage.
In that case, there was an agreement for the defendant to lend the plaintiff company 5,000 l. redeemable on 30 days' notice by either party. The agreement also provided that the defendant should have, as security, 300,000 l. of the company’s first mortgage debenture stock transferred to him. There was also an agreement that the defendant should have the option of purchasing the whole or any part of the debenture stock at any time within twelve months. Before the plaintiff company could repay, the defendant attempted to exercise the option to purchase. In a suit by the plaintiff company, it was held that the option to purchase the debenture stock was a clog on the equity of redemption and therefore invalid.
In the case of Noakes & Co Ltd v Rice, [1901] UKHL 3 (Dec 17, 1901), Lord Davey similarly explained that the maxim “once a mortgage, always a mortgage” is
only another way of saying that a mortgage cannot be made irredeemable, and that a provision to that effect is void.
…
Once a mortgage always a mortgage and nothing but a mortgage. The meaning of that is that the mortgagee shall not make any stipulation which will prevent a mortgagor, who has paid principal, interest, and costs, from getting back his mortgaged property in the condition in which he parted with it.
In that case, the appellants, a firm of brewers, advanced money to the respondent to purchase a public house. The advance was secured by a mortgage deed that conveyed the property to the appellants as mortgages, and which also required the respondent to buy beer only from the appellants for the whole term of the mortgage. The respondent later sought to redeem the mortgage, and the appellants argued that the covenant to buy beer only from the appellants survived redemption. There was an issue of whether the covenant obliging the mortgagor to purchase beer exclusively from the mortgagee after repayment of the loan constituted a “clog or fetter” on the equity of redemption and was, therefore, void. In the opinion of the House of Lords, the covenant was a fetter or clog on the equity of redemption and was therefore void.
However, it must be noted that the court may allow a provision in the mortgage that postpones when the mortgagor can redeem the mortgage if the provision is fair. In the case of Knightsbridge Estate v Byrne [1940] AC 613, there was a mortgage dated 6th November, 1931, between the plaintiff company and the defendant insurance company. Per the terms of the mortgage, it could only be redeemed in 1971 (40 years after the date of the mortgage). There was an issue of whether the provision in the mortgage that sought to postpone the right of redemption for so long was void in equity as preventing redemption for an unreasonable length of time. At the trial court, it was held that the 40-year period for redemption was unusual and oppressive and constituted an unlawful clog on the right of the appellants to redeem the mortgage. On appeal, it was held that the agreement was between two important corporations who were experienced in such matters and that the court would not interfere.
At the House of Lords, it was held that loans made to limited companies on the security of their assets are in general very different from loans made to individuals. Unlike loans to individuals, a loan to a company can rarely be said to place the borrower at the mercy of the lender. Per Viscount Maugham,
There is no likelihood of oppression being exerted against the company. Considerations such as these make it manifest that clauses in debentures issued by companies making them irredeemable or redeemable only after long periods of time or on contingencies ought to be given validity…It is difficult to see any real unfairness in a normal commercial agreement between a company and (for example) an insurance society for a loan to the former on the security of its real estate for a very prolonged term of years. Both parties may be equally desirous that the mortgage may have the quality of permanence.
…
The appellants executed the mortgage with their eyes wide open. In such a case, the Court in these days must be slow to interfere with a contract deliberately entered into
His lordship concluded that the appellant’s claim to redeem contrary to the terms of mortgage, must fail.
4. Rights of the Mortgagor in Possession:
In Section 1(2) of NRCD 96, it is provided that
A mortgage shall be an encumbrance on the property charged, and shall not, except as provided by this Decree, operate so as to change the ownership, right to possession or other interest (whether present or future) in the property charged.
That is, under NRCD 96, a mortgagor has the right to remain in possession of the property. Prior to the enactment of this provision, the mortgagee, per Da Rocha and Lodoh (supra), had an overriding right to possession of the mortgaged property because he was the owner of the legal title to the property.
Per Section 12 of NRCD 96, the mortgagor in possession also has the right to transfer his interest in the mortgaged property without the concurrence of the mortgagee. In Section 12(1), it is provided that
Unless a contrary intention appears expressly or by necessary implication, a mortgagor may transfer all or any part of his interest in the mortgaged property at any time without the concurrence of the mortgagee.
Per Section 12(5), “transfer” includes a sale, lease, encumbrance, or other disposition.
It must be noted, however, that per Section 12(2), a transfer does not relieve the mortgagor of his personal liability on any covenant in the mortgage.
Also note that in Section 12A of NRCD 96, as inserted by the National Mortgages, Financing and Guarantee Scheme Decree, 1976, it is provided that
A mortgagor under a mortgage to which this Decree applies shall not transfer any interest in the mortgaged property under section 12 of the Mortgages Decree, 1972 (NRCD 96) without the consent in writing of the mortgagee
This provision is extra protection given to the mortgagee.
Conclusion:
This note discussed the mortgagor’s rights under the mortgage, particularly the right of redemption. It was explained that prior to the enactment of NRCD 96, the mortgagor had to transfer title to the mortgagee, and the right of redemption required the mortgagee to reconvey the property to the mortgagor upon the latter’s discharge of his obligations. Under NRCD 96, however, the right is in the form of freeing the mortgaged property from the encumbrance placed on it by the mortgage. The note also distinguished between the right to redeem and the equity of redemption and the position of the courts regarding clogs or fetters on the equity of redemption. Finally, the note highlighted the fact that the mortgagor has the right to possession and can transfer his interests in the property, unless a contrary intention appears. In a subsequent note, we will discuss the rights of the mortgagee under the mortgage.